5 Aug 2020 - Mid morning Update

Stoxx 600 Index Rises 0.9%; BP Leads Advance

Apple Cut to Neutral at BofA

Investec 1.35M Share Block Trades at 33.50 Rand

Direct Line Jumps to Highest in Five Months; Volume Doubles

DNO Shares Up 8.1%, Most in 2 Months; Trading Volume Quadruples

Tesco Upgraded to Buy on Defensive Credentials: Shore

(Bloomberg) -- Tesco upgraded to buy from hold at Shore, which says the U.K. grocer has rebuilt its defensive credentials that will “come to the fore in the more constrained times ahead.”

• Shore sees EPS declining in the current year, followed by a “sharp rebound” in FY22 with further growth after that, analyst Darren Shirley writes in a note
• There’s scope for extra cash to be returned to shareholders annually, given Tesco will soon be meeting its leverage targets, Shore says
• NOTE: Tesco shares trade 0.9% higher as of 10:42am in London
• The U.K. grocer on June 26 said 1Q sales jumped more than expected, fueled by customers switching from discounters, pandemic-related stockpiling and a surge in online shopping

morning wrap 5 august

*POINTS OF NOTE*

 

Equity Markets rallying but with low conviction I feel. In the UK, Oil majors (BP+4.9%) continue their move up as do Airlines (Easyjet up 8.85%).

 

COVID

U.S. Daily Coronavirus Cases Inch Lower, Hitting About 45,000 - WSJ

 

PMIs

• China PMI - Services underperforming manufacturing. 3 month low for Caixin PMI services
• Peripheries PMIs - Italy and Spain PMI both beat expectations
• UK Services and Composite PMI comes in line

 

FINS:

• New CS AT1 trading up (100.25/100.5) | CS 5.25 27
• Barclays in the market with new AT1 (presumably to pre-finance Barclays 8% AT1)

 

CORPS

US HY - Issuance nears $10bn this week

BMW Second Quarter Ebit Loss Wider Than Estimates  

Virgin Atlantic Files Chapter 15 Petition to Aid U.K. Rescue

Vonovia: Solid 1H print as expected with only 1% of tenants asking for rent assistance

Disney Earnings Report Reveals Rare Loss | Mulan remake will be available on disney+ for $30... - WS

 

 

*MORNING WRAP*

 

MACRO CREDIT   3

Caixin PMI Services Index dipping to a three-month low of 54.1 vs consensus of 58   3

UK CIPS/IHS MARKIT JULY FINAL SERVICES PMI AT 56.5 (VS FLASH 56.6)   3

UK JULY FINAL COMPOSITE PMI AT 57.0 (VS FLASH 57.1)   3

ITALY JULY SERVICES PMI RISES TO 51.6; FORECAST 51.4   3

ITALY JULY COMPOSITE PMI RISES TO 52.5; FORECAST 51.8   3

SPAIN JULY SERVICES PMI RISES TO 51.9; FORECAST 52.3   3

SPAIN JULY COMPOSITE PMI RISES TO 52.8; FORECAST 52   3

SWEDEN JULY PMI SERVICES RISES TO 54.8 from 49.2 prior.   3

SWEDEN Composite to 53.7 from 48.7   3

Why’s the ECB Buying the Debt of So Many Non-EU Companies?   3

NEW ISSUES / TENDERS   5

IPT: Barclays $Bmark PerpNC 12/2025 AT1 6.625% Area   5

NEW BACR PNC-12/25 set to pre-fund Barclays 8% AT1 | RBC Comment   5

PRICED: Credit Suisse $1.5b PerpNC7 Sub at Par to Yield 5.25%   6

MANDATE: Aircastle to Hold Fixed-Income Investor Calls Today   6

PRICED: Avis Budget Car Rental $350m 5.75% 2027 Tap at 92.0 to yield 7.235%   6

US HY - Issuance nears $10bn this week   6

COVID19   6

U.S. Daily Coronavirus Cases Inch Lower, Hitting About 45,000 - WSJ   6

Novavax coronavirus vaccine induces immune response in early study, shares jump - RTRS   6

US   7

Office Markets Under Pressure as Coronavirus Squeezes Cities - WSJ   8

UK / IRE   9

British new car registrations rose by roughly 11% year on year in July   9

London Rents Set to Slump to Lowest Level in Nearly Six Years - BBG   9

FINANCIALS   10

CMZB 2Q20: The bank reported an underlying Profit Before Tax of €211m vs. cons. €37m | Citi  10

BKIR 1H20: Large loss on higher loan losses, looks to front loading, question on asset quality   11

Phoenix Appoints New Business Leaders to Grow Open Business - WSJ   11

AIG Results Look Grim but Represent Progress - WSJ   12

Metro Bank 1H 2020 - STIFEL commetns   13

LendInvest finances £10m bridging loan for borrower after Covid-19 financing delays 13

Legal & General - Solid earnings but dividend outlook will be in focus | Citi - Buy (TP: £2.42)   13

IG   14

BMW Second Quarter Ebit Loss Wider Than Estimates   14

BP 2Q20: 50% Div Cut; New Green Strategy | Creditsights   14

Vonovia: Solid 1H print as expected with only 1% of tenants asking for rent assistance   15

Segro: The headline is in line with adj. EPS at 12.5p. Q3 collections at 90% perhaps a touch below what we would like to see | Citi  16

Aircastle grants rental deferrals to half its customers | FlightGlobal   16

Disney Earnings Report Reveals Rare Loss | Mulan remake will be available on disney+ for $30... - WSJ   17

Diageo full-year sales plunge as demand in bars, restaurants dries up   19

HY   20

Virgin Atlantic Files Chapter 15 Petition to Aid U.K. Rescue   20

EM / ASIA   20

Gramercy Statement on Agreement Between Argentina and its Creditors   20

Sony’s Results Get Boost From Videogame Boom - WSJ   20

Turkish Lira’s Borrowing Cost Shoots Up on Offshore Markets - WSJ 21

Virgin Australia to slash workforce, focus on short haul under Bain   22

ESG / RENEWABLES / BUY SIDE   23

Big Bond Traders Double Down on Their Bet on Peripheral Europe - BBG   23

Britain’s National Grid plans to test hydrogen heating for homes   23

RATINGS   23

EQUITIES   23

BBG highlights that August is worst month for Global Stocks over past decade.

BBG Reporter Cormac Mullen highlights that August is worst month for Global Stocks over past decade.

It's the first trading day of August and that means seasonality season has officially started. The month has traditionally been a poor one for risk assets -- the worst over the last decade for global stocks -- with the MSCI AC World Index declining on average about 1.2%. Many market commentators don't have much time for seasonality arguments; academic studies tend to show that any recurring relationship that might have once existed has long been arbitraged away. And August's is a tougher one to argue as it doesn't have a tax deadline or quarter-end in it that could lend weight to why markets would regularly sell off -- outside of low summer liquidity of course. A look at weak Augusts over the past ten years reminds me of Homer Simpson's summary of a memorable series of events as "just a bunch of stuff that happened." The surprise Chinese yuan devaluation of 2015 and European sovereign debt crisis in 2011 that helped push global shares down over 7% those months were not linked to the month of August beyond coincidence. And while we almost had a great parallel from Fitch's warning on the U.S. debt outlook -- Standard & Poor's famously cut its AAA rating in August 2011 -- the Fitch downgrade came out July 31. But traders will still have "August is a weak month" somewhere in the back of their minds and that could make it easier to push the sell button on any negative news that breaks.

Cormac Mullen is a cross-asset reporter and editor for Bloomberg News in Tokyo

Morning wrap 3 August 2020

*POINTS OF NOTE*

COVID19:

Coronavirus Cases Rise in Europe as Youth Hit Beaches and Bars - WSJ

Why Youthful, Conservative Pakistan Is a Coronavirus Bright Spot - WSJ  

Melbourne Hardens Lockdown to Combat Resurgent Coronavirus Outbreak - WSJ

Africa's Covid-19 Tally Rises to 910,395 Cases, Agency Says  

Chileans Dip Into Pensions to Ease Economic Pain - WSJ

MACRO CREDIT:

China Caixin PMI Jumps to 52.8 (highest since early 2011) - Higher than forecast of 51.1 -BBG

Valeo, the French autoparts credit, was downgraded to HY on Friday night, making it the latest fallen angel

AUGUST EQUITY MOVES:

NDX ended the month up +7.4%, SPX up +5.5% and Dow up +2.4%, making 4th consecutive monthly gains for the indices

US ECONOMY / FED:

FED - Fed Weighs Abandoning Pre-Emptive Rate Moves to Curb Inflation - WSJ

US CONSUMER - Consumers, Flush With Stimulus Money, Shun Credit-Card Debt (WSJ)

INFLATION & HOUSING - Lumber prices have more than doubled since early April. Prices for wood products are htiting records all over country - likely to filter into higher INFLATION figures.

FINANCIALS:

HSBC - Warns of bigger credit losses than expected but CET1 comes in higher than expected (15%). UK is area with greatest provisioned credit losses due to asssumptions around COVID19/Brexit.

DEALS:

Lots of deals announced over weekend:->

Nvidia to bid for ARM (Owned by Softbank)

PE Firms discuss bid for US Railroad Giant (Kansas City Southern)

Marathon to Sell Gas-Station Chain to 7-Eleven Owners for $21 Billion - WSJ

Siemens Healthineers to Buy Varian Medical for $16.4 Billion - WSJ. Deal will create a leader in the area of cancer therapy.

 

*MORNING WRAP*

MACRO CREDIT 3

China Caixin PMI Jumps to 52.8 (highest since early 2011) - Higher than forecast of 51.1 -BBG 3

South Korean Exports Fell for Five Months; Pace of Declines Moderated in July 3

Jet fuel demand outlook sours after fleeting market optimism - RTRS 4

Bitcoin has tripled in value since March, as investors and speculators bet the cryptocurrency will continue to rise amid record-low government bond yields. 6

NEW ISSUES / TENDERS 7

COVID19 7

Coronavirus Cases Rise in Europe as Youth Hit Beaches and Bars - WSJ 7

Why Youthful, Conservative Pakistan Is a Coronavirus Bright Spot - WSJ 9

Melbourne Hardens Lockdown to Combat Resurgent Coronavirus Outbreak - WSJ 10

Africa's Covid-19 Tally Rises to 910,395 Cases, Agency Says 11

US 11

Fed Weighs Abandoning Pre-Emptive Rate Moves to Curb Inflation - WSJ 11

Democratic, Administration Negotiators at Loggerheads Over $600 Jobless Benefit 12

Consumers, Flush With Stimulus Money, Shun Credit-Card Debt - WSJ 13

Airlines Go Back to Congress for Money to Preserve Jobs - WSJ 15

Ongoing fiscal stimulus “is potentially more inflationary than appreciated, which means that back-end rates can rise: MS 17

America’s Saw Mills Didn’t See This Building Boom Coming - WSJ 17

Fitch Ratings Revises US Outlook to Negative; Affirms AAA Rating 18

UK / IRE 19

Over half of furloughed UK staff back at work: Resolution Foundation 19

Ryanair to fight Irish travel restrictions in court - RTRS 19

British Airways pilots accept pay cuts, job losses negotiated by union - RTRS 20

Apple demands 50% rent cuts for UK stores - Sunday Times 20

UK pubs and leisure stocks maybe weak today after Professor Graham Medley… 22

FINANCIALS 22

Capital One Slashes Dividend by 75% to 10 Cents a Share - WSJ 22

Hiscox First Half Gross Written Premiums Misses Estimates 22

HSBC | UK operations hit by highest expected credit losses | | CET1 of 15% 23

HSBC Hit by Impairments, ‘Relentless’ Rates Pressure: Analysts | Shares down 4% in HK 23

Société Générale Q2 20 results weaker than expected | CET 1 of 12.5% 24

Sabadell AT1 down 6pts last week: Jefferies 24

IG 24

Marathon Petroleum to Sell Gas-Station Chain to Japanese 7-Eleven Owners for $21 Billion 24

HY 25

TUI SIGNS SALE AND LEASEBACK FOR 5 BOEING 737 MAX-8 FOR $226M 25

EM / ASIA 25

MTN Group Sees 1H EPS Above Previous Views; Won't Pay Interim Dividend 25

Chileans Dip Into Pensions to Ease Economic Pain - WSJ 25

ESG / RENEWABLES / BUY SIDE 26

RATINGS 26

Fitch Affirms Close Brothers at 'A-'; Outlook Negative 26

Hawaii Affirmed at AA+ by Fitch 26

S&P lifts outlook on EU credit rating 26

Valeo, the French autoparts credit, was downgraded to HY on Friday night, making it the latest fallen angel 26

EQUITIES 26

Vanishing payouts: £30bn in dividends gone already - Sunday Times 26

BP set to slash dividend - Sunday Times 27

Total Seen as Differentiated Pick Among Energy Shares: Berenberg 27

UK Shopping centre giant Hammerson set to tap investors for £600m 28

Nvidia in Talks to buy ARM from Softbank 28

Private-Equity Firms Discuss Bid for Kansas City Southern [US RAILROAD] - WSJ 28

Siemens Healthineers to Buy Varian Medical for $16.4 Billion - WSJ 29

Aroundtown Gets First Sell With MS Cautious Given Uncertainty 29

 

More deals breaking down - This time Cineworld/Cineplex

More deals breaking down, over weekend we had Cineworld basically ending Cineplex takeover - resulting in legal action.

Other M&A deals that have recently fell through include the Taubman / Simon Property deal.

Then there are deals that have been amended like the BP/Premier Oil deal. (Disclosure: I own securities in both these names).

Thanks

Mastercard SpendingPulse: Estimated $53 Billion in Additional U.S. E-Commerce Sales as Pandemic Drives Consumers Online in April and May

http://mastercardcontentexchange.com/newsroom/press-releases/2020/june/mastercard-spendingpulse-estimated-53-billion-in-additional-us-e-commerce-sales-as-pandemic-drives-consumers-online-in-april-and-may/

10 June 2020 - NEW LENDERS ACCREDITED TO BRITISH BUSINESS BANK CORONAVIRUS BUSINESS LOAN SCHEMES

https://www.british-business-bank.co.uk/new-lenders-accredited-to-british-business-bank-coronavirus-business-loan-schemes-3/

Disclosure purposes, I own some of the names in this release.

Are AT1s becoming more like US Prefs - h/t Creditsights

I can't remember exactly, but I think Creditsights made the comment recently somewhere that the AT1 market in Europe is becoming like the US Bank preference share market. I.e there is some uncertainty around calls on some bond issues, but in a way, market participants dont seem fussed since most are traded to maturity now. Of course there will be exceptions.

Also I see that Nationwide is issuing a new AT1 that is callable at anytime 6 months prior to first call date (2027). This helps the issuer refinance at a period that is most attractive, but creates a bit of uncertainty around when the precise call will be for investors, but still it focuses the issuers' mind on calling.

10 June 2020 - Early thoughts

Some of my early morning thoughts:->

• EUR HY issuance lagging US HY issuance - WSJ comments
• Bit of softening in US IG Corp, Citi Credit Trading reporting that spreads went out right about where it opened +5-15bp in banks, 5-10bp wider in industrials, +5bp in Reits.
• VW to refinance low reset Corporate Hybrid - VW 3.75% perp in EUR by issuing new set of Hybrids
• US Elections – As we approach November, more and more press noise around impact of possible Biden presidency…
• Morgan Stanley – CEO says he may reinstate divis and buybacks if situation improves over next few months…!
• Nationwide to issue a new AT1 (IPT of 6.25% area) and tap its CCDS issue at 161 area – I think if NWIDE comes with coupon of 6%+ it will fly. IG rated, solid capital ratios, Sterling guys will eat it up.
• Unicredit redeeming high coupon perp (9.375%)
• Gundlach webcast yesterday – link in morning wrap document
• Attached – impact of COVID19 on African American job market (WSJ article)

Hong Kong government to bail out Cathay Pacific, first ever time the HK Govt has directly injected money into a private Company

From the WSJ- 

Hong Kong government to bail out Cathay Pacific with HK$30 billion in loan and direct stake

June 9 (South China Morning Post) -- Restructuring package worth HK$40 billion to city's flagship carrier, with Hong Kong government contributing lion's share of bailout Government's financial backing shows full support for city's status as a regional aviation hub

Cathay Pacific will undergo a HK$40 billion (US$5.2 billion) capital restructuring exercise as the Hong Kong government takes the lead in a bailout package worth nearly HK$30 billion in loans and an undisclosed stake, lending its full backing for the city to remain the region's aviation hub.

It is the first time the government has directly injected money into a private company.

Hong Kong's flag carrier will issue new shares as part of the plan which will see the authorities taking up two "observer" boardroom seats in an unprecedented shake-up that will empower it to have a direct say in how the airline is run, sources have told the Post.

Emerging as a "white knight", the government will offer a loan to be paid back in the future and, more controversially, it will take a stake in the airline without seeking full boardroom status. Instead, it will have the "two observers" on the board, industry sources revealed.

Trading was suspended on Tuesday morning while the city's leader, Carrie Lam Cheng Yuet-ngor, met with the Executive Council, her de facto cabinet, to get final approval of a package that is expected to be announced later on Tuesday.

Could we see a similar situation in other countries? What is the implication for creditors to Cathay, e.g Aircraft lessors, bond investors in Airline paper. I presume its a positive. Not clear if Govt becomes a super senior creditor of sorts.

New Albania in Euro looks cheap

I know nothing about this issuer. But just going by the performance of other similar CEE nations like Serbia.

SERBIA 3 ⅛ 05/15/27 which was was issued in may 2020 is already upto 105.0

Pricing talk on new Albania :->

€ Rep. of Albania EUR 7-year 144a/REGS  IPTs 4.125% area
Source: The Leads @ 9:24am today.

• Issuer Ratings: B1/B+
• Exp. Ratings: B1/B+